The most important part of your individual retirement account (IRA) is the fact that it is "individual". You can customize when you make deposits, take withdrawals and pay taxes on distributions. You can even control what happens to it after you die. Want to take advantage of all that your IRA has to offer? Read on for some little-known features that will help you get the most out of your contributions.

1. You can contribute to more than one IRA.
It is possible to end up with more than one IRA for a number of reasons. For example:

• You had an existing Roth account and then rolled an old 401(k) into a Traditional IRA.
• Your adjusted gross income (AGI) rose to the point where you were no longer eligible to contribute to your Roth IRA, so you opened a Traditional IRA.
• You inherited an IRA from a loved one, but you already had one of your own.
• You maintained your Roth account and opened a Traditional IRA to take advantage of tax deductions.

Contribute to as many IRAs as you want, but the total deposited in all IRAs is limited to the annual maximum amount. For example, the annual maximum contribution for 2008 is $5,000. So, if Bob deposits $2,000 into his Traditional IRA, he can also contribute $3,000 to his Roth account during the same year. (For more insight, read IRA Contributions: Eligibility And Deadlines.)

2. All IRA contributions must be made in cash.
This limitation may be irritating if you're rolling over an account and you don't want to liquidate the assets. Cash contributions force a new basis for investments inside the account. The basis of the IRA is important because when you take a distribution from a Traditional IRA, you pay taxes on the gains and income from your investments, but not on the basis. (For more on taxes and your IRA distributions, see Avoiding Too Much Tax On Your Distributions.)

3. IRA losses may be tax deductible.
One of the main advantages of an IRA account is the ability to defer taxes on gains and investment income. But you can't use losses inside the IRA to offset gains. This is because the IRS gives you a reprieve after you liquidate the account: If the total distributions from your IRA are less than your basis in the account, you can deduct the loss after all assets are distributed from the account. (For related reading, see Traditional IRA Deductibility Limits.) 

According to IRS Publication 590, you can deduct losses on a Traditional IRA with the following caveats:

a) When you are have completely withdrawn all funds from the account and the total amount of basis is less than the total amount distributed and
b) Like other miscellaeous decuctions, you can only deduct up to 2% of AGI

4. You control your required minimum distributions.
Traditional IRA owners must begin taking distributions by April 1 of the year after they turn 70.5 years old. The minimum amount distributed is based on the balance of the account on December 31 of the previous year and the owner's life expectancy. For each year thereafter, the required minimum distribution (RMD) must be withdrawn. (To learn more, see 'Tis The Season For Required Minimum Distributions.)

If you have multiple Traditional IRAs, you don't have to take RMDs from all of them. You can combine the total balances from the end of the previous year to calculate your total RMD and actually take the distribution from one account or a combination of accounts. For example, you may prefer to liquidate the investments in one account over the investments in another account. (For more on RMDs, see Avoiding RMD Pitfalls, Strategic Ways To Distribute Your RMD and Preparing for the RMD Season.)

5. All beneficiaries are not created equal.
One of the benefits of owning an IRA is the ability to transfer funds directly to beneficiaries without going through probate. This is because spousal beneficiaries can claim inherited IRAs as their own. This flexibility allows the spouse to control new contributions and distributions.

Non-spousal beneficiaries cannot treat inherited IRAs as their own. They can't add to them and they must completely liquidate the account within five years of the death of the owner. Keep this in mind if you plan to leave IRA assets to your children or grandchildren. (To learn more, read Leaving Inheritance To Children Easier Said Than Done and Don't Forget The Beneficiary Form.)

6. A basis is needed for IRA transfers, but not rollovers.
It is common for individuals to move accounts from one financial institution to another. If you just decide to maintain the same type of IRA account with a different company, that's considered a "transfer". All assets are moved "in kind" (as they are), without liquidating anything. In this case, it's your responsibility to retain the original basis on the account; the receiving institution will request a copy of a statement proving the basis.

You need to have an accurate basis amount for Traditional IRAs, because distribution amounts above the basis are taxable. IRA assets above the basis can be rolled into other types of retirement accounts, but the basis must be maintained in the IRA, or it will be considered a taxable distribution.

A rollover involves moving your money from one type of retirement account to another. For a rollover, you must liquidate the previous holdings to move cash into the IRA, so the basis becomes irrelevant. (For more on rollovers, see Common IRA Rollover Mistakes.)

7. You can deduct IRA fees from your taxes.
Financial services firms may charge annual fees on top of transaction fees for the purchase or sale of investments. You may be able to deduct these fees using 1040 Schedule A. (For related reading, see An Overview Of Itemized Deductions.)

8. Your annuity can act like an IRA.
Your annuity can operate under the same rules as an IRA. The benefit is that annuity policies were designed to provide retirement income for life. Some annuities also offer optional features not available in regular IRAs. The downside is that annuity premiums, which contain insurance payments, can be higher than other investments. (For more on annuities, see An Overview Of Annuities.)

9. IRAs are non-fiduciary accounts.
Brokerage accounts allow you to give your financial advisor written authorization to make investing decisions and routine transactions without notifying you first. Often, a flat fee is charged for managing the account. This type of fiduciary activity is not allowed for IRAs.

10. The IRS and/or your financial institution may limit the kinds of investments you can hold in your IRA.
The IRS limits which investment types can be held in an IRA, but your financial institution may have additional asset restrictions. For example, the IRS allows some gold and silver coins, but most financial institutions will not. Also, some mutual fund companies may not allow individual stocks to be held in their IRAs. (For related reading, see IRA Assets And Alternative Investments.)

11. Age is just a number.
Anyone paid a salary, tips or hourly wages for their work (earned income) can have an IRA, including minors. This means your children can start saving for retirement as soon as they get their first jobs. An IRA is an excellent option for kids who earn more than they intend to spend, because it allows long-term tax-deferred savings. The tax penalty for early distributions will encourage your kids to maintain the account, while offering the ability to use funds for college or to buy their first home without penalty. It also teaches your children the value of investing at an early age. (For more on setting up a savings plan for a child, see Savings Plans For Minors.)

Senior citizens can continue to contribute to Roth IRA accounts indefinitely. This is an excellent account for "never money" that will eventually pass as an inheritance without going through probate.

Conclusion
Individual retirement accounts have built-in flexibilities. Understanding how the various features work can help you tailor your retirement savings to meet your needs.

by Stephanie Powers, (Contact Author | Biography)

Stephanie Powers has worked in the financial services industry since 1995. She uses her experience as a financial advisor to write investment and personal finance articles that educate readers and help them make informed decisions. Her credentials include FINRA securities licenses, an MBA, and experience consulting with individuals and businesses for Edward Jones Investments and Merrill Lynch. Previous experience includes working as a business consultant for American General Insurance and IBM.

In her spare time, Stephanie enjoys traveling, playing golf, and genealogy research.